Notes on the Utility Function used in the Monopolistic Competition ModelThe utility function is:4u(q , q) = Gq, where 0 < "<1.12, ..........i"i=1This function is sometimes called the “love for variety” utility function. Example 1:Assume that there are four varieties available and that "= 1/2 . Suppose the agent can consumea total of 16 units. We will show that the agent will be happier consuming 4 units of each of thecommodities than 8 units of only two commodities or 16 units of a single commodity.
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 05/15/2008 for the course ECON 467 taught by Professor Muniagurria during the Summer '06 term at University of Wisconsin.